Media Industry Executives Focused on Mergers, Streaming for 2016

Billionaire media investor John Malone will play a key role in redrawing the U.S. media industry in 2016, according to analysts and others who predict the landscape will be reshaped by consolidation and the continued rollout of over-the-top video streaming services.

Malone's Liberty Media Broadband (LBRDA) owns a 26% stake in cable operator Charter Communications (CHTR) , which is expected to close its $79 billion merger with Time Warner Cable (TWC) by mid-2016. If that happens, it could make LibertyMedia (LMCA) , Malone's main holding, a vehicle for media consolidation, said Amy Yong, media analyst with Macquarie Securities.

Among the potential deals Wall Street expects from Malone would be a merger of Malone's 47%-controlled Starz (STRZ) premium cable network with movie studio Lions GateEntertainment (LGF) . Malone and companies he controls own a 9.8% stake in Lions Gate.

Spokespeople for both Lions Gate and Liberty declined comment.

The successful completion of the Charter-Time Warner Cable merger would also enable Malone to acquire Cablevision (CVC) if New York regulators block an $18 billion deal by France's Altice (ATCEY) to buy the cable operator, said former Disney (DIS) senior executive Bernard Gershon, president of consulting firm Gershon Media. That deal would allow Malone's team to combine Cablevision's nearly three million cable customers in the New York with Time Warner Cable's customers in the region.

"There will be much more consolidation in 2016 on both the programmer side and the (TV distribution) side, " said Gershon.

The 74-year-old Malone won't be the only media executive shopping for deals in 2016. Wall Street insiders speculate Twenty First Century Fox (FOX) will sell its 39% stake in European satellite company Sky (SKYAY) with Time Warner (TWX) among the potential buyers, said media strategist Peter Kreisky, chairman of Kreisky Media Consultancy.

Representative of both Time Warner and Fox had no comment.

Cable TV giant Comcast (CMCSA) could be among the bidders for ITV, Kreisky said, if the British broadcaster goes on the market. Time Warner might also take a look at ITV.

"Comcast can't grow any further in the U.S. through M&A so must cast its sights overseas," said Kreisky. "ITV and Sky would likely be of interest to Time Warner as it seeks to expand its global footprint further."

ITV had had no comment on the rumors. Comcast threw cold water on speculation that it had approached ITV. "We don't comment on M&A rumors but the speculation on ITV is just completely inaccurate," a spokesman said in a statement.

U.S. Spanish language giant Univision, which filed its initial public offering in July, could be angling to buy smaller Hispanic broadcaster Entravision (EVC) after its own IPO, said Macquarie Securities analyst Yong. A Univision spokesperson didn't return emails seeking comment.

Media executives will also spend much of 2016 playing catch up with CBS (CBS) , HBO and other media companies that offer TV programming directly to consumers by streaming them online, or going "over the top," said Gershon

"It's a 'no choice' path for the legacy players -- do it or die," said former Universal TV chairman Blair Westlake, a one-time top Microsoft (MSFT) executive who negotiated content rights for the Xbox game console. "We've seen many legacy cable and broadcast channels suffering double digit decline in viewing."

The company to watch is ESPN, said Kreisky, if the Disney sports channel behemoth decides to offer an over the top version despite Disney executives publicly saying they don't see the need at this time.

"They have a huge fixed cost base of sports rights purchases on the assumption of sustainable scale. Cord cutting is already eating into that assumption," Kreisky said. "Look for them to change their business model. It has to be Disney's No. 1 priority."

In a further move to encroach on traditional TV viewing, Gershon predicts the National Football League will license some of its games to online powers such as Amazon (AMZN) or Alphabet's (GOOG) YouTube following the league's 2015 test streaming of the Buffalo Bill- Jacksonville Jaguar game in October.. CBS will beat back competitors to extend its deal with the NFL to broadcast Thursday night games when that package is early in 2016, he said.

The drumbeat of Internet-based offerings by content companies will likely force a confrontation with cable and satellite distributors, who pay billions of dollars a year in program rights but chafe as programmers start their own competing online services.

So far, the battleground has been over so-called retransmission agreements by which programmers seek higher rates to supply their channels. In 2016, the distributors will accelerate their offerings of smaller bundles of channels, effectively competing directly with the programmers, predicts Westlake.

"We'll also see tensions between (distributors) and programmers way beyond anything we've witnessed to date," Westlake said. "It will make the standoffs around retransmission consent negotiations seem like child's play."

This article is commentary by an independent contributor. At the time of publication, the author held positions in Disney, Microsoft, CBS and Comcast.